DVC Emta Coal Mines Ltd. Vs ACIT (ITAT Kolkata)
The appeals were filed by DVC Emta Coal Mines Ltd., Bengal Emta Coal Mines and Panem Coal Mines against separate orders of the ACIT, Central Circle-3(1), Kolkata for A.Y. 2013-14, passed pursuant to directions of the DRP-2, New Delhi. Since the facts and grounds were stated to be identical, the Tribunal disposed of the appeals through a consolidated order, taking ITA No. 2430/Kol/2017 as the lead case.
The assessee raised a legal challenge concerning the effect of the omission of clause (i) of section 92BA by the Finance Act, 2017 with effect from 01.04.2017. It contended that the impugned transactions were consequently outside the definition of specified domestic transaction and that the assessment order passed pursuant to the DRP directions was bad in law. The assessee also challenged the assessment under sections 143(3), 92CA(3) and 144C(5), including an enhancement of income of Rs. 13,52,49,494/-.
The assessee relied upon the ITAT Bangalore decision in Texport Overseas Private Limited Vs. DCIT, along with decisions of other Tribunal Benches and Supreme Court judgments concerning the effect of omission of statutory provisions.
The Tribunal reproduced the reasoning in Texport Overseas, under which omission of clause (i) of section 92BA without a saving provision meant that the clause was deemed never to have been on the statute book. The Tribunal held that proceedings initiated or action taken under the omitted clause did not survive. It therefore held that the cognizance taken by the AO under section 92BA(i) and reference to the TPO under section 92CA were invalid and bad in law, and that the consequential orders of the TPO and DRP were not sustainable.
The Tribunal consequently set aside the orders of the AO and DRP and restored the matter to the AO to adjudicate the claim of expenditure in accordance with law after affording the assessee an opportunity of being heard. The appeals were allowed for statistical purposes.
Background and Procedural History
The appeals arose from separate orders of the ACIT, Central Circle-3(1), Kolkata dated 27.09.2017 in respect of DVC Emta Coal Mines Ltd. and Bengal Emta Coal Mines and dated 25.09.2017 in respect of Panem Coal Mines. The orders were passed consequent to directions of the DRP-2, New Delhi dated 18.08.2017 for A.Y. 2013-14.
The Tribunal recorded that the facts were identical and the grounds were common. It therefore decided all the appeals through a consolidated order and selected ITA No. 2430/Kol/2017 as the lead case.
Legal Grounds Raised by the Assessee
The assessee challenged the assessment order on legal and jurisdictional grounds. It contended that the order passed pursuant to the DRP directions was bad in law and invalid.
It specifically contended that the Finance Act, 2017 had omitted section 92BA(i), with the result that the impugned transactions were outside the definition of specified domestic transaction and the assessment order should be annulled.
The assessee also submitted that the transactions were restricted and subjected to supervision by State Government-nominated directors and, according to its ground, there was no scope for tax arbitrage being enjoyed by the Associated Enterprise.
Another ground challenged the assessment order dated 27.09.2017 under section 143(3) read with sections 92CA(3) and 144C(5), alleging that the order was passed subsequent to the limitation under section 144C(4) and was therefore without jurisdiction, illegal and bad in law.
The assessee further challenged the enhancement of its income by Rs. 13,52,49,494/-.
Assessee’s Submissions
Reliance on Texport Overseas
The learned counsel submitted that the legal issue was no longer res integra and had been adjudicated by the ITAT Bangalore Bench in Texport Overseas Private Limited Vs. DCIT, IT(TP)A No. 1722/Bang/2017 for A.Y. 2013-14, order dated 22.12.2017.
The assessee submitted that the matter should be remanded to the AO with the directions given in that decision.
Effect of Omission of Section 92BA
The assessee relied upon the omission of section 92BA(i) and contended that the impugned transaction would no longer fall within the definition of specified domestic transaction. It referred to the decisions of the Supreme Court in CIT Vs. General Finance Co. Vs. ACIT 257 ITR 338 (SC) and Kolhapur Canesugar Works Ltd. Vs. Union of India in Appeal (Civil) 2132 of 1994, judgment dated 01.02.2000.
The assessee’s submission, as recorded by the Tribunal, was that omission without an applicable saving provision meant that proceedings based upon the omitted provision could not survive.
Tribunal’s Consideration
Effect of Omission on Pending Proceedings
The Tribunal considered the reasoning of the Bangalore Bench in Texport Overseas. That decision had examined whether proceedings already initiated under clause (i) of section 92BA could continue after its omission by the Finance Act, 2017 with effect from 01.04.2017.
The Tribunal reproduced the principle that, where a provision is omitted and there is no provision in the subsequent rule or statute preserving pending proceedings, such proceedings may lapse. It also reproduced the earlier Tribunal’s reliance on the Supreme Court decision in Kolhapur Canesugar Works Ltd. Vs. Union of India concerning the effect of omission and section 6 of the General Clauses Act.
General Finance Co. and GE Thermometrics
The earlier Tribunal decision also considered General Finance Co. Vs. Assistant Commissioner of Income-tax 257 ITR 338 (SC). The principle recorded in the supplied material was that the principle underlying section 6 of the General Clauses Act, saving the right to initiate proceedings for liabilities incurred during the currency of an enactment, would not apply to omission of a provision in an Act in the same manner as repeal.
The Tribunal further reproduced the decision in CIT Vs. GE Thermometrics India Pvt. Ltd., in ITA No. 876/2008, where the absence of a saving clause following omission of a provision was considered relevant to whether the omitted provision could continue to affect the assessment.
Tribunal’s Findings on Section 92BA(i)
Respectfully following the earlier Tribunal order, the Tribunal held that clause (i) of section 92BA had been omitted by the Finance Act, 2017 with effect from 01.04.2017 and that nothing was specified while omitting the clause regarding continuation of proceedings already initiated under it.
The Tribunal therefore held that proceedings initiated or action taken under clause (i) would not survive. It further held that the cognizance taken by the AO under section 92BA(i) and the reference made to the TPO under section 92CA were invalid and bad in law.
The consequential orders passed by the TPO and DRP were accordingly held not to be sustainable in the eyes of law.
Assessment to Be Considered in the Normal Course
The Tribunal reproduced the earlier direction that, once clause (i) of section 92BA was omitted, the AO should frame the assessment in the normal course after making necessary enquiries regarding the relevant claim of expenditure in accordance with law.
The AO was directed to adjudicate the claim of expenditure after affording the assessee an opportunity of being heard.
Other Tribunal Decisions Relied Upon
Raipur Steel Casting India (P.) Ltd.
The Tribunal’s discussion referred to the ITAT Kolkata decision in M/s. Raipur Steel Casting India (P.) Ltd. vs. PCIT-5, ITA No. 895/Kol/2019, in which the omission of clause (i) of section 92BA was considered in connection with revisional jurisdiction under section 263.
The decision was referred to as supporting the proposition that the omitted clause could not form the basis for proceedings after its omission.
Texport Overseas Private Limited
The Tribunal relied upon the ITAT Bangalore decision in Texport Overseas Private Limited Vs. DCIT, IT(TP)A No. 1722/Bang/2017, A.Y. 2013-14, order dated 22.12.2017.
Directions to the Assessing Officer
The Tribunal held that the orders of the AO and DRP were required to be set aside on the issue arising from the omission of section 92BA(i). The matter was restored to the AO.
The AO was directed to readjudicate the issue of the claim of expenditure incurred in respect of which payment had been made or was to be made to a person referred to in clause (b) of sub-section (2) of section 40A of the Act, after affording the assessee an opportunity of being heard.
Since the matter was restored to the AO, the Tribunal found no justification for dealing with the other issues on merits.
Final Decision
The Tribunal held that the proceedings based on the omitted clause (i) of section 92BA did not survive. The orders of the AO and DRP were set aside to that extent, and the matter was restored to the AO for fresh adjudication of the relevant expenditure claim in accordance with law.
All the appeals of the assessees were allowed for statistical purposes.
Order pronounced in the open court on 1st May, 2019.
Cases Discussed
- Texport Overseas Private Limited Vs. DCIT – IT(TP)A No. 1722/Bang/2017, A.Y. 2013-14, order dated 22.12.2017.
- M/s. Raipur Steel Casting India (P.) Ltd. vs. PCIT-5 – ITA No. 895/Kol/2019.
- CIT Vs. General Finance Co. Vs. ACIT 257 ITR 338 (SC).
- Kolhapur Canesugar Works Ltd. Vs. Union of India in Appeal (Civil) 2132 of 1994, judgment dated 01.02.2000.
- General Finance Co. Vs. Assistant Commissioner of Income-tax 257 ITR 338 (SC).
- CIT Vs. GE Thermometrics India Pvt. Ltd., in ITA No. 876/2008.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
All these appeals filed by different assessees are against the separate orders of ACIT, Central Circle-3(1), Kolkata dated 27.09.2017 in respect of DVC Emta coal Mines Ltd. and Bengal Emta Coal Mines and dated 25.09.2017 in respect of Panem Coal Mines Ltd. passed consequent to the direction of Ld. DRP-2, New Delhi all dated 18.08.2017 for AYs 201314. Since facts are identical and grounds are common, we dispose of all these appeals by this consolidated order for the sake of convenience.
2. We take up the case of ITA No. 2430/Kol/2017 as the lead case and the result of which will be followed in other two appeals also.
3. At the outset itself, the Ld. Counsel drew our attention to the grounds of appeal wherein the legal issue has been raised, which is as under:
“A. Grounds of appeal arising out of legal/jurisdictional view; read with chapter X of Income Tax Act, 1961.
1. That on the facts and circumstances of the case and in law, the assessment order passed by the Assessing Officer (AO) pursuant to the directions of Hon’ble Dispute Resolution Panel (DRP) is bad in law and invalid.
2. Since Finance Act 2017 omitted section 92BA( 1) the impugned transactions are outside the definition of specified domestic transaction, therefore the order passed by Hon’ble assessing officer be annulled.
2.1. That the facts and circumstances of the case and the law the Assessing Officer/ TPO as well as DRP erred in not appreciating the fact that the transactions were since restricted and subjected to supervision by state government nominated directors, therefore there was no scope of tax arbitrage being enjoyed by AE and hence outside the preview of section 92BA of the Act.
3. That on the facts of the case and in law the Ld. A.O. erred in passing assessment order dated 27.09.2017 under section 143(3) read with section 92CA(3) and 144C(5) of Income Tax Act, 1961, as such the order so passed subsequent to limitation under section 144C(4) is without jurisdiction, illegal, bad in law and therefore be annulled.
4. That on the facts and circumstances of the case and in law, Ld. TPO/the Ld. AO/ and the Hon’ble DRP have erred on facts and in law in enhancing the income of the appellant by Rs. 13,52,49,494/-. ”
4. The Ld. Counsel first of all brought to our notice that the aforesaid legal issue that has been raised is no longer res integra and has been adjudicated by Coordinate Bench of this Tribunal Bangalore Bench in the case of IT(TP)A No. 1722/Bang/2017 in Texport Overseas Private Limited Vs. DCIT for AY 2013-14 vide order dated 22.12.2017 and submitted that the matter may be remanded back to the AO with the direction given in the said order. We note that the legal issue raised by the assessee goes to the root of the matter and we note that the AO has made a reference u/s. 92 Ld. CIT(A) having observed that the assessee has entered into specified domestic transactions since this case was covered u/s. 92BA of the Act but later on there was an amendment in Sec. 92BA by Finance Act, 2019 w.e.f. 01.04.2017 whereby clause (ii) of sec. 92BA relating to any expenditure in respect of which payment have been made or is to be made to a person referred to clause (b) of subsection (2) of section 40A of the Act was omitted and, according to Ld. AR, on account of its omission, the impugned transaction would not fall within the definition of specified domestic transaction and referred to the judgment of Hon’ble Supreme Court in the case of CIT Vs. General Finance Co. Vs. ACIT 257 ITR 338 (SC) in which the Apex Court has held that the principle underlying section 6 of General Clauses Act as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal of the provision of the Act. The Ld. AR also referred to the decision of the Hon’ble Supreme Court in the case of Kolhapur Canesugar Works Ltd. Vs. Union of India in Appeal (Civil) 2132 of 1994 by judgment dated 01.02.2000 in which the Constitution Bench has held that section 6 of General Clauses Act only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not as a Rule. It was further clarified by the Hon’ble Apex Court that in such a case, the Court is to look into the provision in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by section 6 of the General Clauses Act or there is a pari material provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. We note that this issue has been adjudicated by the Tribunal vide order dated 22.12.2017 wherein the Tribunal has held as under:
“2. During the course of hearing, the learned counsel for the assessee has moved an application for the admission of the additional grounds with a request that since the additional grounds goes to the root of the case it should be admitted and be disposed off at the threshold. The admission of the additional grounds were strongly objected by the learned DR on the premise that these grounds were never raised before the DRP nor were they raised in the original grounds of appeal. Therefore, it cannot be admitted.
3. The learned counsel for the assessee has further contended that AO has made a reference under section 92CA, having observed that the assessee has entered into specified domestic transaction as this case is covered under section 928A of the IT Act but later on there was amendment in section 92BA by the Finance Act, 2017 w.e.f. 01.04.2017 whereby clause (ii) of section 92BA relating to any expenditure in respect of which payment has been made or is to be made to a person referred to clause (b) of sub section 2 of section 40A was omitted and on account of its omission, the impugned transaction would not fall within the definition of specified domestic transaction. Therefore, it has become necessary for the assessee to raise this additional ground before the Tribunal.
4. The learned counsel for the assessee has further invited bur attention that provision of section 928A was brought on statute by the Finance Act, 2012 w.e.f. 01.04.2013 relevant to assessment year 2013-14. Therefore, it is the first year when the transactions are to be examined in the light of provision of section 928A of the Act. Since the transactions under clause (i) exceeded the prescribed limit, the AO considered it to be specified domestic transaction and made a reference to TPO for computation of ALP. Accordingly, TPO ·has computed the ALP which was objected to by the assesses before the DRP and DRP disposed off the objections with certain findings/directions.
5. The learned counsel for the assessee further contended that sub clause (i) of section 92BA under which assessee has undertaken the transactions which has exceeded the prescribed limit, was omitted by the Finance Act, 2017 w.e.f. 01.04.2017. Since clause (i) has been omitted from the statute by virtue of the, amendment, this particular sub clause shall be deemed not to be on the statute since the beginning. In support of his contention, the learned counsel for the assessee has placed a heavy reliance upon the judgment of the Apex Court in the case of Kolhapur Canesugar Works Ltd., Vs. Union of India in Appeal (Civil) 2132 of 1994 vide judgment dated 01.02.2000 in which the constitution bench has held that section 6 only applies to repeals and not to omissions, and applies when the repeal is of a Central Act or Regulation and not as a Rule. It was further clarified by the Apex Court that in such a case the court is to look to the provisions in the rule which has been introduced after omission. of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. A further reliance was also placed upon the judgment of the Apex Court in the case of General Finance Co. Vs. Assistant Commissioner of Income-tax 257 ITR 338 (SC) in which the Apex Court has held that the principle underlying section 6 as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in the aforesaid decisions. Reliance was also placed upon the order of the Tribunal in lT(TP)A No. l 722/Bang/2017 Page 4 of7 the case of CIT Vs. GE Thermometrics India Pvt. Ltd., in ITA No. 876/2008 in which while dealing the omission subsection (9) of Section 1 OB the Hon’ble High Court has held that once the section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, when the assessment orders were passed, the AO was not justified in taking note of a provision which was not in the statute book and denying benefit to the assessee. Therefore, in the light of these judicial pronouncements, sub-section (i) of section 928A shall be deemed to be not on the statute since beginning.
6. The learned DR on the other-hand has contended that even if it is held that the clause (i) of section 928A relating to expenditures in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A of the Act is not on the statute since beginning in view of the amendment and in the light of various judicial pronouncements the reference made by AO to TPO is bad in law, the AO is required to examine the claim of the assessee in the light of other provisions of the Act.
7. Having carefully examined the orders of authorities below in the light of rival submissions and relevant provisions and various judicial pronouncements, we find that by virtue of the insertion of section 92BA on the statute as per clause (i), any expenditure in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A exceeds the prescribed limit, it would be a specified domestic transaction for which AO is required to make a reference to TPO under section 92CA of the Act for determination of the ALP. In the instant case, since the transaction exceeds the prescribed limit it becomes the specified domestic transaction for which reference was made by the AO to the TPO under section 92CA for determination of the ALP. Consequently, the TPO submitted a report which was objected to by the learned counsel for the assessee and filed a objection before the ORP. Having adjudicated the objections the ORP has issued certain directions and consequently the AO passed an order. Subsequently, by Finance Act, 2017 w.e.f. 01.04.2017, clause (i) of section 92BA was omitted from the statute. Now the question arises as to whether on account of omission of clause (i) from the statute, the proceedings already initiated or action taken under clause (i) becomes redundant or otiose. In this regard, our attention was invited to judgment of the Apex Court in the case of Kolhapur Canesugar Works Ltd., (supra) in which the impact of omission of old rule 10 and 1 OA was examined.
Having carefully examined the issue in the light of provisions of section 6 of the General Clauses Act, their Lordship has observed “that in such a case, the court is to look to the provisions in the rule which has been introduced after omission of the previous rule to determine whether a pending proceeding will continue or lapse. If there is a provision therein that pending proceedings shall continue and be disposed of under the old rule as if the rule has not been deleted or omitted then such a proceeding will continue. If the case is covered by Section 6 of the General Clauses Act or there is a pari-materia provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provisions in the statute or in the rule, the pending proceeding will lapse under rule under which the notice was issued or proceeding being omitted or deleted”.
8. In the case of General Finance Co., Vs. ACIT, their Lordship Of the Apex Court has again examined the issue and held that the principle underlying section 6 as saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in different cases. Following the aforesaid judgments, the jurisdictional High Court has also expressed the same view in the case of CIT Vs. GE Thermometrics India Pvt. Ltd. The relevant observation of the jurisdictional High Court is extracted hereunder:
“8. Admittedly, in the instant case, there is no saving clause or provision introduced by way of an amendment while omitting sub-section (9) of Section 10B. Therefore, once the aforesaid section is omitted from the statute book, the result is it had never been passed and be considered as a law that never exists and therefore, when the assessment orders were passed in 2006, the AO was not justified in taking note of a provision which was not in the statute book and denying benefit to the assessee. The whole object of such omission is to extend the benefit under Section 10B of the Act irrespective of the fact whether during the period to which they are entitled to the benefit, the ownership continues with the original assessee or it is transferred to another person. Benefit is to the undertaking and not to the person who is running the business. We do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed.”
9. From the aforesaid judgments, it has become abundantly clear that once a particular provision of section is omitted from the statute, it shall be deemed to be omitted from its inception unless and until there is some saving clause or provision to make it clear that action taken or proceeding initiated under that provision or section would continue and would not be left on account of omission.
10. In the instant case, undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. Once this clause is omitted by subsequent amendment, it would be deemed that clause (i) was never been on the statute. While omitting the clause (i) of section 92BA, nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In this legal position, the cognizance taken by the AO under section 92B(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law.
11. Under these circumstances, where this clause (i) is omitted from the statute since its inception, the AO ought have required to frame the assessment in normal course after making necessary enquiries of particular claim of expenditure in accordance with law. But this exercise could not have been done on account of provisions of section 92BA Clause (i) of the Act. Now when this clause (i) has been omitted from the statute by virtue of the aforesaid amendments, the AO is required to adjudicate the issue of claim of expenditures in accordance with law after affording opportunity of being heard to the assessee. We therefore set aside the orders of the AO and the DRP and restore the matter to the AO with the direction to readjudicate the issue of claim of expenditure incurred in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A of the Act. Accordingly, since we have restored the matter to the AO, we find no justification to deal with the other issues on merit. Accordingly, appeal of the assessee stand allowed for statistical purposes.”
5. Respectfully following the aforesaid order of the Tribunal, we note that in the instant case, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. The legal effect of a provision being omitted by subsequent amendment, then it would be deemed that clause (i) was never been on the statute book. While omitting the clause (i) of section 92BA, we note that nothing was specified whether the proceeding initiated or action taken on this continue. Therefore, the proceeding initiated or action taken under that clause would not survive at all. In the light of this legal position, the cognizance taken by the AO under section 92BA(i) and reference made to TPO under section 92CA is invalid and bad in law. Therefore, the consequential order passed by the TPO and DRP is also not sustainable in the eyes of law. Therefore, the legal effect is when this clause (i) is omitted from the statute it has to be taken as though there is no clause (i) since its inception. And when looked from that angle, the AO should have framed the assessment as in normal course after making necessary enquiries of particular claim of expenditure in accordance with law. But this exercise could not happen on account of provisions of section 92BA clause (i) of the Act. Therefore, since this clause (i) has been omitted from the statute by virtue of the aforesaid amendments, the AO is required to adjudicate the issue of claim of expenditures in accordance with law after affording opportunity of being heard to the assessee. We therefore set aside the orders of the AO and the DRP and restore the matter back to the AO with the direction to readjudicate the issue of claim of expenditure incurred in respect of which payment has been made or is to be made to person referred to in clause (b) of sub section 2 of section 40A of the Act. Accordingly, since we have restored the matter to the AO, we find no justification to deal with the other issues on merit. Accordingly, appeal of the assessee stand allowed for statistical purposes. Therefore, all the appeals of assessee are allowed for statistical purposes.
6. In the result, all the appeals of assessee are allowed for statistical purposes.
Order pronounced in the open court on 1st May, 2019
